For credit and accounts receivable teams, the traditional business credit report has long been a cornerstone of collections management. It tells you who owes money, how much they owe, and how overdue those balances have become.
But a single report is just that: one single snapshot in time. It can't always tell you which customers are risky, which accounts need your attention, or where you can grow your business.
In our recent Beyond the Aging Report webinar, Creditsafe experts Yesinne Alvarez and Leo Lichman explored how payment data and credit risk analytics can:
- Help finance teams prioritize collections
- Forecast cash flow
- Identify emerging risks
- Make more informed credit decisions
Why is payment data important for credit risk management?
How a company pays its suppliers can provide an early indication of its financial health.
When cash becomes tight, your customers will probably prioritize the essentials:
- Utilities
- Telecommunications
- Software
- Payroll
- Critical suppliers
If you aren't one of those priority expenses, you may find yourself waiting longer when a business is in trouble. As Yesinne explained during the webinar, this hierarchy can become an early indicator that a business is experiencing cash flow pressure.
So how do you go beyond an aging report? What makes modern, high-performing credit teams different from the ones always playing catch-up? And, most importantly: what can your team do with payment data to catapult your business to a new level? Let's explore.
1. Prioritize collections based on risk
Not every overdue account deserves the same level of attention.
By segmenting customers into risk categories, you can be more strategic about which collections you prioritize.
Not every overdue account deserves the same level of attention.
By segmenting customers into risk categories, you can be more strategic about which collections you prioritize.
2. Improve cash flow forecasting
Portfolio-level payment data can also provide useful context for cash flow forecasting.
Looking at total overdue balances alongside average Days Beyond Terms (DBT) can help finance teams estimate how collections may develop during the month. Changes in DBT can also provide an easily understood performance indicator for management.d.
Rather than reporting only the value of outstanding receivables, AR leaders can explain whether customers are paying faster or slower and how those trends may affect expected cash flow.
3. Make stronger credit decisions
Historical payment behavior becomes particularly valuable when an existing customer returns with a new order or requests a larger credit line.
A customer may have been financially healthy when you last traded with them, but their circumstances can change quickly. Trending DBT over time can reveal whether payment performance has deteriorated since the previous transaction.
This information can also make conversations with sales more productive.
As Yesinne noted, credit teams and sales teams ultimately have different responsibilities: sales wants to complete the transaction, while credit needs to protect the company's assets. Showing payment trends can replace a subjective “no” with evidence and create room for alternatives, such as requesting 25% or 50% upfront or finding another way to secure the account.
4. Understand portfolio concentration risk
AR analytics can also reveal concentrations by industry and geography, allowing teams to understand where their exposure sits instead of looking at individual businesses as one-offs. Ledger Insights, for example, can display payment performance and risk across industry verticals as well as outstanding receivables by state or city.
Geographic analysis can become especially useful when external events disrupt customers' operations. Natural disasters, for example, may cause businesses in an affected region to temporarily preserve cash for emergency expenses.
Understanding that concentration allows credit leaders to explain rising past dues to senior management and evaluate responses such as temporary extended terms.
5. Turn AR data into a strategic management tool
Perhaps the biggest opportunity is changing how the business thinks about accounts receivable.
AR data isn't useful only for chasing overdue invoices. Combined with risk intelligence, it can support conversations about bad debt reserves, credit limits, customer growth, cash flow, and broader portfolio risk.
High-risk segmentation, for example, can help provide CFOs with tangible evidence when discussing which receivables may be in jeopardy.
At the other end of the spectrum, you can look to your low-risk customers as growth opportunities. If payment history and risk indicators remain strong, the business may have greater confidence when considering increased orders or expanded commercial relationships.
Your aging report can tell you more
An aging report answers an important question: Who owes us money?
But you don't need just one answer. When you're thinking about collections, the questions are never-ending:
- Who is most likely to pay?
- Which accounts are becoming riskier?
- Where should collectors spend their time?
- How is customer behavior affecting cash flow?
- Where can the company safely pursue growth?
Combining payment history, aging data, and business credit risk analytics can help answer those questions.
How far can a business credit report take you?
Learn more about Creditsafe's business credit reports.
Frequently Asked Questions
What is payment data in accounts receivable?
Payment data is information about how businesses pay their invoices, including whether payments are made on time or beyond agreed payment terms. When combined with accounts receivable and credit risk data, payment behavior can help credit teams identify potential cash flow problems, understand customer risk and prioritize collections.
How can payment data help prioritize collections?
Payment data becomes more useful when combined with credit risk segmentation. Credit and collections teams can identify higher-risk customers that may warrant more immediate attention while potentially using automated reminders for lower-risk customers. This helps teams focus their resources on accounts where intervention may be most valuable.
What is Days Beyond Terms (DBT)?
Days Beyond Terms (DBT) measures payment performance relative to agreed payment terms. Tracking DBT over time can show whether a customer's payment behavior is improving or deteriorating. In the webinar, Creditsafe demonstrated how DBT trends can provide additional context when an existing customer returns with a new order or requests additional credit.
How can accounts receivable data improve cash flow forecasting?
Looking at overdue balances alongside metrics such as average Days Beyond Terms can help finance teams understand current payment performance and develop a clearer picture of what they may collect during the month. Changes in payment speed can also help AR teams communicate collection performance to senior management.
What is the difference between an aging report and Ledger Insights?
An aging report primarily shows outstanding receivables and how long invoices have been unpaid. Creditsafe Ledger Insights combines a company's customer and AR data with Creditsafe risk information to provide a portfolio-level perspective. According to the webinar, this enables teams to analyze their overall portfolio rather than looking only at individual business credit reports.
How can AR analytics help credit, collections and sales teams work together?
AR analytics can give teams objective information to use when discussing credit decisions. For example, if a customer requests a larger order while its payment performance is deteriorating, credit teams can show the trend to sales and explore alternatives, such as requesting a percentage of the payment upfront. This can help support sales opportunities while managing the company's credit exposure.
About the Author
Lina Chindamo, Director, Enterprise Accounts, Creditsafe
Lina Chindamo is currently Director, Enterprise Accounts at Creditsafe Canada, and a Certified Credit Professional (CCP) with over 25 years of experience in credit risk management. She has held senior leadership roles with leading companies in multiple industries in the Canadian market such as Sony Electronics, Maple Leaf Foods, and Mondelez Canada. Her experience as a credit professional along with her current role as Director, Enterprise Accounts who works closely with c-suite partners and credit teams across all industries makes her a well-rounded credit professional who is well respected in our industry.
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